Is a Short Sale Right for You? Understanding the Law

If you are under water on your mortgage (i.e. you owe more than the house is actually worth) and you are having difficulty making monthly mortgage payments, you may want to consider a short sale. This type of sale may benefit you in the long-run by avoiding a hit to your credit from a foreclosure.

Image Source (CC BY 2.0) by Trulia via flickr
Image Source (CC BY 2.0) by Trulia via flickr

Understanding the Basics of a Short Sale

A short sale would enable your home to be sold for its current value, as opposed to the presumably higher value of your mortgage. So, for example, if you owe $250,000 on a home in Dade County, but the home is currently valued at $200,000, the short sale would put the home on the market for $200,000.

Entering into such an arrangement is a serious consideration, for which there are (at least) two big things to keep in mind:

  1. A short sale must be approved by your lender
  2. This type of sale negatively affects your credit, just not as severely as a foreclosure

Florida Law and Foreclosures – Why a Short Sale May be an Attractive Option

Under Florida law, lenders have the right to pursue borrowers for up to 20 years after a home foreclosure to get their money back. This means you, or a loved one, could face decades of wage garnishment long after you have left the home and tried to rebuild your life. An article published in the Wall Street Journal is a prime example of how lenders are willing to engage in a long, drawn-out battle over a foreclosure. The homeowner in that article has been battling her lender for over 25 years.

When it comes to a short sale, lenders may be willing to write off the remainder owed on the loan if they believe there is a good chance they will recover the value of the home via the sale. It is a pretty basic calculus the lender must go through – do they swallow a $50,000 loss through a short sale but still recoup the remaining $200,000 owed, or do they risk not getting any money back by the homeowner going into foreclosure? This is why lenders are open to agreeing to short sales, especially if the homeowner has not shown the ability to pay their mortgage on time.  

Keep in mind, there is still a risk that the lender will try to collect the balance, but such a pursuit occurs much less frequently compared to foreclosures. This may be due to the fact that, for short sales, the homeowner is attempting to work with the lender and the lender is getting a good portion of their loan back. Also, the law is much stricter on a lender going after a homeowner post-short sale. In fact, with a short sale, the lender must obtain a judgment from a court to get the authority to pursue the borrower for what is owed on the principal. For foreclosures, the lender can immediately pursue the borrower for what is owed.

A Short Sale Is Not a Solution for All Housing Difficulties

Whether a short sale is the right option depends largely on the specific facts of your situation. A big drawback with a short sale is that you have to disclose your financial information to the lender. This can actually encourage the lender to go after you to try and recover on the remaining principal owed. Nevertheless, someone who is having a hard time paying their mortgage probably is not concerned about the lender discovering a hidden treasure trove of assets.

Speak to an Experienced Short Sale and Foreclosure Defense Law Firm Today

Do not try and take on the lender by yourself. You should have an advisor on your side looking out for your best interests. For any short sale or deed in lieu of foreclosure transaction, make sure you have a legal counsel experienced with short sales to protect your interests.  The law firm of Hoffman, Larin & Agnetti, P.A. offer free, confidential consultations. We are here to help.